KEWAL KIRAN CLOTHING LIMITED. 

KKCL IS AN INTEGRATED APPAREL MANUFACTURER INVOLVED FROM MANUFACTURING TO RETAILING.

THE COMPANY HAS FOUR ESTABLISHED BRANDS IN THE RETAIL APPAREL WEAR

KILLER, INTEGRITI,EASIES AND LAWMAN

KILLER AS A BRAND HAS COMPLETED 20 YEARS AND HAS GAINED ACCEPTABILITY AS A GOOD RELIABLE JEANS BRAND.

THE COMPANY IS SLOWLY EXTENDING THE BUSINESS TO LADIESWEAR UNDER THE KILLER BRAND.

THE COMPANY AT THE END OF FY 09 HAD 123 OPERATIONAL RETAIL STORES.

BUSINESS MODEL

KKCL OPERATES THE RETAIL STORES IN THREE FORMATS,  COMPANY OWNED COMPANY OPERATED, COMPANY LEASED AND FRANCHISEE OPERATED AND FRANCHISEE LEASED AND FRANCHISEE OPERATED.  ONLY FIVE STORES FALL IN THE FIRST CATEGORY.

THE COMPANY SELLS ITS PRODUCTS TO THE DISTRIBUTORS/RETAILERS ON OUTRIGHT SELL BASIS WITHOUT TAKING THE RISK OF INVENTORY BUILD UP. IT PROVIDES 33-45% MARKED DOWN PRICES TO ITS TAG PRICE AND THUS TRANSFERS THE INVENTORY RISK TO THE SELLER/RETAILER.

FINANCIALS

EQUITY--- 12.33 CRORES FACE VALUE OF RS 10.

DEBT  AS ON MARCH 09 WAS 23 CRORES WITH TOTAL CURRENT MARKET CAP AT 295 CRORES

 

Year	05	06	07	08	09	9mfy10
sales	26	86	133	159	145	129
NP	4	12	18	21	14	24
Div		1.5	2.5	4	3
Ronw		31	14.8	14.9	9.42

 

Ronw figures are taken from bse website.(don’t know how reliable it is)

9 month eps is around 19.5 (not annualised)

Positives:

1.       The business model of the company does not entail inventory risk unlike other retailers

2.       Low debt of 23 crores. Company had cash of around 65 crore as on March 09 due to funds raised during ipo in 2006.

3.       Management seems to be very conservative in its expansion plans and have expanded their retail operations without loading up too much debt

4.       Full integration with almost 90% production from its own facilities provides better quality control along with cost advantage.

5.       High promoter holding of around 74-75%

 

 

RISKS:

Dependence on single brand Killer which contributes around 53% of its total revenues

Slow and conservative expansion can also dampen the growth of the company(although in hindsight it seems to have been beneficial)

 

TECHNICALS:

THE STOCK MADE A HIGH OF 564 IN JAN 08 AND THEN FELL DOWN TO FORM A LOW OF 86 DURING MARCH 09 AND SINCE THEN HAD BEEN IN AN UPTREND FORMING A SORT OF UPWARD SLOPING CHANNEL.  RECENTLY THE STOCK BROKE DOWN FROM THE CHANNEL AND IS CORRECTING. ITS 200 DEMA AROUND 205 COULD BE NEXT SUPPORT.

 

CURRENT MARKET PRICE IS AROUND 240.

 

THIS IS A SYNOPSIS(not a buy recommendation)  FOR VIEWS FROM OTHER MEMBERS WHO HAVE MORE  INSIGHT INTO RETAIL PLAYS TO POINT OUT THE RISKS AND BENEFITS AND THINGS TO LOOK OUT FOR WHILE INVESTING IN RETAIL PLAYS.  

THIS IS A COMPANY WITH LOW DEBT AVAILABLE AT AROUND 10 PE AND NOT TOO MUCH RESEARCHED.

 

 

 

Originally posted by nav_1996 Challenge is that its biggest brand Killer is not an aspirational brand in denims among youth.

Very true nav. But I feel, among listed retail players like koutons, raymonds or some others this one seems better placed financially and from personal experience I can say that during my college days we used to prefer killer bcos the most preferred brand was levi and others but they did not fit our pockets then whereas killer was a good compromise between price and quality.

Just some dope:
- their business model is a lot different from others. what they do is SELL the entire inventory to the franchisee (shop owner). this reduces a lot of working capital, explaining the better balance sheet.
- secondly, wenevr there r a lot of stores added (not their own), u will see a jump in sales. this is coz the franchisee has to set up shop with about Rs.20 lakh worth of clothes..(i talked wid the shop owner near my place) whether the shop manages to sell the clothes to customer or not, KKCL books the sales. (nothn rong in it..quite a good policy)
- the operating profit margins have increased quite a lot recently. imho, these r not sustainable.
- the points raised by other members about the brand power are also very valid, i think.

(i do not think it is cheap enuf at this mkt cap)

Originally posted by nav_1996 There is no magic in biz model. Only very strong brands will survive. Or you have to be a multi brand retailer like Pantaloon/Shopper Stop. Short-term we can make some money but I don't see a moat in longer term.

Thanks nav for your views. I agree there does not seem any moat in kkcl. I intend to keep watching for another 1-2 quarters before taking a call.